eBay to shed enterprise business for $925 million

Just before eBay and PayPal will split up Friday, eBay signs a deal to ditch another distraction from its focus on its marketplace.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
3 min read

eBay's goal after the split is to re-energize its core marketplace. Justin Sullivan/Getty Images

As eBay gets ready to split from PayPal, the company is shedding one last distraction from its core business.

The e-commerce company said Thursday it has signed a deal to sell off its eBay Enterprise unit -- which helps run online retail sites, including those of Ikea, Timberland and iRobot -- for $925 million. The buyer is a consortium that includes private-equity firms Permira and Sterling Partners. eBay took a loss on the sale, after it bought GSI Commerce for $2.4 billion in 2011 and turned it into the enterprise business.

The deal lets eBay further narrow its focus on its core eBay.com marketplace as it prepares to separate from PayPal on Friday. Last month, eBay also sold back a stake in Craigslist and agreed to end litigation with the online classifieds company. Back in January, eBay had said it would seek to sell or spin off eBay Enterprise because it didn't fit with the rest of its business.

The enterprise unit was supposed to be a way for eBay to expand into new territory and take on Amazon -- well-known for aggressively growing into new businesses -- but the venture didn't turn out that way.

"Without a sale the enterprise unit could have been a weight around eBay's neck, after one of its largest customers, Toys 'R' Us, said it would stop using the service and bring operations in house by 2016," said Kathleen Brooks, research director at online brokerage City Index.

eBay and PayPal's planned separation, first announced in September, came after activist investor Carl Icahn pressured the break up to help unlock PayPal's potential. eBay's more focused goal is in stark contrast to PayPal's plans to rapidly expand in online and mobile payments. After Friday's split, PayPal is expected to become the larger company by market valuation, following huge growth since its $1.5 billion acquisition by eBay in 2002. PayPal will face the big challenge of increased competition in its field, as Apple and Google move into its niche, but it gets much more freedom to partner with new companies after it ends its close ties with eBay.

"We want to become more of a part of how customers move money," PayPal's incoming CEO Dan Schulman said on a call with analysts Thursday, as part of eBay's late earnings report as a combined company.

Meanwhile, eBay will be more focused on goosing slow sales, as it continues to face tough competition from Amazon and other online retailers. Devin Wenig, eBay's incoming CEO, took a positive stance on eBay's future but was blunt about its challenges going forward, addressing eBay's need to bring back infrequent customers and make its site easier to search.

"I'm encouraged by the state of our business," Wenig said on the call. "We've made solid progress but we have significant work ahead of us."

He added that eBay's leadership will "make hard decisions along the way." John Donahoe, eBay's current CEO, will step down.

eBay on Thursday also released second-quarter earnings, with shares rising more than 4 percent in morning trading to $66.18, thanks to better-than-expected adjusted earnings.

PayPal sees a bright future, but needs to move quickly to stay ahead of its growing competition. Getty Images

eBay's two main units followed a similar trend as in past quarters. The payments unit, which includes PayPal, posted a 16 percent increase in revenue year over year to $2.26 billion. The marketplaces unit, which includes eBay.com, reported a 3 percent decline in revenue to $2.12 billion, due in part to foreign exchange rates. Total revenue rose 6.7 percent to $4.38 billion, below analysts' expectations.

Overall, profit for the company was $83 million, or seven cents a share, down from $676 million, or 53 cents a share, a year earlier. Excluding losses tied to the eBay Enterprise sale, adjusted earnings were 76 cents a share, up from 70 cents a share. Analysts polled by Thomson Reuters expected adjusted earnings of 72 cents a share.

Separately, eBay's board has agreed to boost its stock buyback by $1 billion, adding to $2 billion already authorized.